IDEAS home Printed from https://ideas.repec.org/p/mpg/wpaper/2004_14.html
   My bibliography  Save this paper

Optimal Income Taxation, Public-Goods Provision and Public-Sector Pricing: A Contribution to the Foundations of Public Economics

Author

Listed:
  • Martin Hellwig

    (Max Planck Institute for Research on Collective Goods, Bonn, Germany)

Abstract

The paper develops an integrated model of optimal nonlinear income taxation, public-goods provision and pricing in a large economy. With asymmetric information about labour productivities and publicgoods preferences, the multidimensional mechanism design problem becomes tractable by requiring renegotiation proofness of the final allocation of private goods and admission tickets for excludable public goods. Under an affiliation assumption on the underlying distribution, optimal income taxation, public-goods provision and admission fees have the same qualitative properties as in unidimensional models. These properties are obtained for utilitarian welfare maximization and for a Ramsey-Boiteux formulation with interim participation constraints.

Suggested Citation

  • Martin Hellwig, 2004. "Optimal Income Taxation, Public-Goods Provision and Public-Sector Pricing: A Contribution to the Foundations of Public Economics," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2004_14, Max Planck Institute for Research on Collective Goods.
  • Handle: RePEc:mpg:wpaper:2004_14
    as

    Download full text from publisher

    File URL: http://www.coll.mpg.de/pdf_dat/2004_14online.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Hanming Fang & Peter Norman, 2003. "An Efficiency Rationale for Bundling of Public Goods," Cowles Foundation Discussion Papers 1441, Cowles Foundation for Research in Economics, Yale University.
    2. Hellwig, Martin F., 2007. "A contribution to the theory of optimal utilitarian income taxation," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1449-1477, August.
    3. Cremer, Helmuth & Pestieau, Pierre & Rochet, Jean-Charles, 2001. "Direct versus Indirect Taxation: The Design of the Tax Structure Revisted," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(3), pages 781-799, August.
    4. Judd, Kenneth L., 1985. "The law of large numbers with a continuum of IID random variables," Journal of Economic Theory, Elsevier, vol. 35(1), pages 19-25, February.
    5. Boadway, Robin & Keen, Michael, 1993. "Public Goods, Self-Selection and Optimal Income Taxation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(3), pages 463-478, August.
    6. Guesnerie,Roger, 1998. "A Contribution to the Pure Theory of Taxation," Cambridge Books, Cambridge University Press, number 9780521629560, February.
    7. Werner Güth & Martin Hellwig, 1986. "The private supply of a public good," Journal of Economics, Springer, vol. 5(1), pages 121-159, December.
    8. Seade, J. K., 1977. "On the shape of optimal tax schedules," Journal of Public Economics, Elsevier, vol. 7(2), pages 203-235, April.
    9. Brunner, Johann K., 1993. "A note on the optimum income tax," Journal of Public Economics, Elsevier, vol. 50(3), pages 445-451, March.
    10. Sören Blomquist & Vidar Christiansen, 2005. "The Role of Prices for Excludable Public Goods," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 12(1), pages 61-79, January.
    11. Schmitz, Patrick W, 1997. "Monopolistic Provision of Excludable Public Goods under Private Information," Public Finance = Finances publiques, , vol. 52(1), pages 89-101.
    12. George J. Mailath & Andrew Postlewaite, 1990. "Asymmetric Information Bargaining Problems with Many Agents," Review of Economic Studies, Oxford University Press, vol. 57(3), pages 351-367.
    13. Rob, Rafael, 1989. "Pollution claim settlements under private information," Journal of Economic Theory, Elsevier, vol. 47(2), pages 307-333, April.
    14. Martin Hellwig, 2008. "A Maximum Principle for Control Problems with Monotonicity Constraints," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2008_04, Max Planck Institute for Research on Collective Goods.
    15. Hellwig, Martin F., 2005. "A utilitarian approach to the provision and pricing of excludable public goods," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 1981-2003, December.
    16. Mikhail Golosov & Narayana Kocherlakota & Aleh Tsyvinski, 2003. "Optimal Indirect and Capital Taxation," Review of Economic Studies, Oxford University Press, vol. 70(3), pages 569-587.
    17. d'Aspremont, Claude & Gerard-Varet, Louis-Andre, 1979. "Incentives and incomplete information," Journal of Public Economics, Elsevier, vol. 11(1), pages 25-45, February.
    18. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production: I--Production Efficiency," American Economic Review, American Economic Association, vol. 61(1), pages 8-27, March.
    19. Norman,P., 2000. "Efficient mechanisms for public goods with use exclusions," Working papers 15, Wisconsin Madison - Social Systems.
    20. Milgrom, Paul & Shannon, Chris, 1994. "Monotone Comparative Statics," Econometrica, Econometric Society, vol. 62(1), pages 157-180, January.
    21. Ebert, Udo, 1992. "A reexamination of the optimal nonlinear income tax," Journal of Public Economics, Elsevier, vol. 49(1), pages 47-73, October.
    22. Cremer, Helmuth & Laffont, Jean-Jacques, 2003. "Public goods with costly access," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 1985-2012, September.
    23. Jesus Seade, 1982. "On the Sign of the Optimum Marginal Income Tax," Review of Economic Studies, Oxford University Press, vol. 49(4), pages 637-643.
    24. Peter J. Hammond, 1987. "Markets as Constraints: Multilateral Incentive Compatibility in Continuum Economies," Review of Economic Studies, Oxford University Press, vol. 54(3), pages 399-412.
    25. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743.
    26. Mirrlees, J. A., 1976. "Optimal tax theory : A synthesis," Journal of Public Economics, Elsevier, vol. 6(4), pages 327-358, November.
    27. Vidar Christiansen, 1981. "Evaluation of Public Projects under Optimal Taxation," Review of Economic Studies, Oxford University Press, vol. 48(3), pages 447-457.
    28. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 175-208.
    29. Al-Najjar, Nabil I., 2004. "Aggregation and the law of large numbers in large economies," Games and Economic Behavior, Elsevier, vol. 47(1), pages 1-35, April.
    30. Jean-Charles Rochet & Philippe Chone, 1998. "Ironing, Sweeping, and Multidimensional Screening," Econometrica, Econometric Society, vol. 66(4), pages 783-826, July.
    31. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
    32. Peter Norman, 2004. "Efficient Mechanisms for Public Goods with Use Exclusions," Review of Economic Studies, Oxford University Press, vol. 71(4), pages 1163-1188.
    33. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
    34. Peter J. Hammond, 1979. "Straightforward Individual Incentive Compatibility in Large Economies," Review of Economic Studies, Oxford University Press, vol. 46(2), pages 263-282.
    35. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hellwig, Martin F., 2005. "A utilitarian approach to the provision and pricing of excludable public goods," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 1981-2003, December.
    2. Stefano Galavotti, 2014. "Reducing Inefficiency in Public Good Provision Through Linking," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 16(3), pages 427-466, June.
    3. Hans Gersbach & Volker Hahn & Stephan Imhof, 2013. "Tax rules," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 41(1), pages 19-42, June.
    4. Felix Bierbrauer, 2006. "Distortionary Taxation and the Free-Rider Problem," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2006_6, Max Planck Institute for Research on Collective Goods.
    5. Felix Bierbrauer, 2008. "A unified approach to the revelation of public goods preferences and to optimal income taxation," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2008_39, Max Planck Institute for Research on Collective Goods.
    6. Felix Bierbrauer, 2009. "Optimal Income Taxation and Public Good Provision with Endogenous Interest Groups," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 11(2), pages 311-342, April.
    7. Milan Žák & Petr Vymětal, 2006. "Institucionální aspekty nové komparativní ekonomie: ČR a EU [Institutional aspects of new comparative economy: Czech republic and European union]," Politická ekonomie, Prague University of Economics and Business, vol. 2006(5), pages 583-609.
    8. Felix Bierbrauer, 2008. "Optimal Income Taxation, Public Goods Provision and Robust Mechanism Design," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2008_31, Max Planck Institute for Research on Collective Goods.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hellwig, Martin F., 2005. "A utilitarian approach to the provision and pricing of excludable public goods," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 1981-2003, December.
    2. Hellwig, Martin F., 2007. "The provision and pricing of excludable public goods: Ramsey-Boiteux pricing versus bundling," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 511-540, April.
    3. Hellwig, Martin F., 2007. "A contribution to the theory of optimal utilitarian income taxation," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1449-1477, August.
    4. Carlos E. da Costa, 2009. "Yet Another Reason to Tax Goods," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(2), pages 363-376, April.
    5. Martin Hellwig & Felix Bierbrauer, 2009. "Public Good Provision in a Large Economy," 2009 Meeting Papers 1062, Society for Economic Dynamics.
    6. Konishi, Hideo, 1995. "A Pareto-improving commodity tax reform under a smooth nonlinear income tax," Journal of Public Economics, Elsevier, vol. 56(3), pages 413-446, March.
    7. Martin Hellwig, 2010. "Utilitarian mechanism design for an excludable public good," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 44(3), pages 361-397, September.
    8. Felix Bierbrauer, 2009. "Optimal Income Taxation and Public Goods Provision in a Large Economy with Aggregate Uncertainty," CESifo Working Paper Series 2701, CESifo.
    9. Felix Bierbrauer, 2008. "A unified approach to the revelation of public goods preferences and to optimal income taxation," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2008_39, Max Planck Institute for Research on Collective Goods.
    10. Felix Bierbrauer & Marco Sahm, 2008. "Optimal Democratic Mechanisms for Taxation and Public Good Provision," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2008_09, Max Planck Institute for Research on Collective Goods.
    11. Felix Bierbrauer, 2009. "On the Legitimacy of Coercion for the Financing of Public Goods," Working Papers 2009.98, Fondazione Eni Enrico Mattei.
    12. Jacquet, Laurence & Lehmann, Etienne & Van der Linden, Bruno, 2013. "Optimal redistributive taxation with both extensive and intensive responses," Journal of Economic Theory, Elsevier, vol. 148(5), pages 1770-1805.
    13. Bierbrauer, Felix & Netzer, Nick, 2016. "Mechanism design and intentions," Journal of Economic Theory, Elsevier, vol. 163(C), pages 557-603.
    14. Felix Bierbrauer, 2006. "Collectively Incentive Compatible Tax Systems," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2006_24, Max Planck Institute for Research on Collective Goods.
    15. Bas Jacobs, 2010. "The Marginal Cost of Public Funds is One," CESifo Working Paper Series 3250, CESifo.
    16. Sahm, Marco, 2006. "Essays in Public Economic Theory," Munich Dissertations in Economics 5633, University of Munich, Department of Economics.
    17. Bas Jacobs, 2018. "The marginal cost of public funds is one at the optimal tax system," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(4), pages 883-912, August.
    18. Bierbrauer, Felix & Sahm, Marco, 2010. "Optimal democratic mechanisms for taxation and public good provision," Journal of Public Economics, Elsevier, vol. 94(7-8), pages 453-466, August.
    19. Gauthier, Stéphane & Laroque, Guy, 2009. "Separability and public finance," Journal of Public Economics, Elsevier, vol. 93(11-12), pages 1168-1174, December.
    20. Robin Boadway, 1998. "The Mirrlees Approach to the Theory of Economic Policy," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 5(1), pages 67-81, February.

    More about this item

    Keywords

    Optimal Income Taxation; Public Goods; Public-Sector Pricing; Multidimensional Mechanism Design; Ramsey-Boiteux Pricing;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H40 - Public Economics - - Publicly Provided Goods - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mpg:wpaper:2004_14. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/mppggde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Marc Martin (email available below). General contact details of provider: https://edirc.repec.org/data/mppggde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.